I'm an associate editor at Forbes, part of the team responsible for our signature issues: The Forbes 400, Global Billionaires and America's Richest Families. As a writer, I cover these wealthy business builders as well as other entrepreneurs. Before Forbes, I also reported on entrepreneurs for Inc. magazine and attended Syracuse University's S.I. Newhouse School of Public Communications.

Same-store sales fell 26.1%, suggesting that J.C. Penney’s struggles to attract and keep customers continue. This is a key metric for retailers because it strips away volatile results from newly opened or closed stores.

“At first blush, the JCP print is not very pretty. At second blush, the JCP print might be even worse than the first blush,” says Deutsche Bank analyst Charles Grom. “Trends at J.C. Penney are obviously getting worse, not better, and we are becoming more and more convinced that sales in 2013 will also decline, which could lead to a going-concern problem next year.”

Revenue in the third quarter was $2.92 billion, beneath the $3.23 billion forecast by analysts. Gross margin fell to 32.5% from 37.4%.

The drop in same-store sales, which has occurred throughout the year, also highlights concerns about how badly J.C. Penney will perform during the key Christmas shopping season, a period where retailers gain a significant portion of annual sales. “I am sure many of you are wondering how we’re going to make it through the next eight weeks,” CEO Ron Johnson this morning told an audience of investors and analysts.

Shares of J.C. Penney closed down 5%.

“J.C. Penney is not a top destination and is nowhere near becoming a top destination in peak seasonal shopping periods,” says Brian Sozzi, chief equities analyst at NBG Production. “If these comp and margin run rates continue, J.C. Penney may have to raise capital or consider removing itself from the public markets—getting certainty of value for shareholders instead of staying public and hoping the turnaround brings to surface unrealized value.”

Johnson hopes an ambitious transformation of the 11o-year-old retailer—refreshing locations and creating a stores-within-a-store layout—will make it more competitive against Kohl’s and Macy’s, as well as Wal-Mart and Target.

Johnson, the former Apple Retail chief and Target executive, this morning described a split in the company: Customers dislike what the old J.C. Penney has become, but are upbeat about the new stores. The makeover includes wider aisles and sections devoted to individual brands centered around a cafe and lounge area; technology, like iPads and mobile checkout systems, also play a role. “I’m really leading two companies. One is J.C. Penney, a promotion department store. The other is JCP, a specialty department store,” says Johnson. “What’s going to be good for one is not going to be good for another.”

The plan for Christmas reflects Johnson’s mindset. J.C. Penney will feature free haircuts and family holiday portraits to attract customers—events that make J.C. Penney stores a place to visit and socialize as much as a shopping destination. J.C. Penney will also have a Black Friday sale; Johnson had sworn off one-time promotions, but said he didn’t want a Grinch-like atmosphere hanging over the department store.

Troublingly, sales are far down this year ($9.09 billion versus $11.84 billion a year ago) after J.C. Penney executed several dizzying transformative moves, deleting coupons and switching to a three-tier pricing method. The shift left customers confused and less keen on shopping there. Johnson would later publicly admit that he had misread J.C. Penney’s customers: “J.C. Penney has performed tougher than we expected this year.”

While the new J.C. Penney stores look good, analysts say, it may be challenging to attract the kinds of customers that Johnson wants and to keep a hold on the existing base. “We appreciate management’s willingness to enact changes, but it has proven a long road to developing the right tactics with a less promotional strategy,” says Baird analyst Erika Maschmeyer.

Johnson sees a 36-month time horizon toward completing the makeover. In that, he says, he hopes to generate as much cash as possible from the old model—dollars that will go to fuel the change. So far, J.C. Penney opened seven new stores in the past quarter based on the new model; some 7.2 million square feet has already received the new layout. J.C. Penney believes that the refreshed locations can drive far greater cash: an estimated $269 per square foot in new stores versus $134 in old ones. “We’re excited about 2013. Back to school next year: 40% of our stores will be converted. If we do our jobs right and we get that sales lift, you can imagine what will happen to the business in the back half of next year,” Johnson says.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

Comments

What I’m referring to was Mr. Johnson making it, “crystal clear” that he very was interested in changing the concept of family. That is why he deliberately chose Ellen, (gay advocate and activist) to be the spokesperson for their new image. He also portrayed, “families of two gay men”, in some of their advertising booklets. That’s some of what I meant about the new morality of the retail giant. For many of their customers; this was a “slap in your face” to the traditional families that had been J.C. Penney’s loyalists. The founder of the company was someone that tried to help families – not redefine them! This “change” was not well received and should be understood as a major cause of many cutomers deserting the company.

The question of morality was brought into this by JcP, not any external force or contributor to this forum. This is not a solely religious contrigution to this discussion, it is a business one. JcP has millions of people to choose from to publically promote their product, and from a purely business perspective, choosing one that has decided to make the culture wars a significant part of their public persona, will, by any measurable business metric, cause loss of business with a significant part of their customer base.

A company like JcP could decide to promote it’s products, rather than promote a cultural norm that is still, from the perspective of millions of Americans, wrong. You may disagree with that personally, but this is supposed to be a business forum, and that choice has an effect on business, which was the point of hiring publically known product spokespeople. I understand your not wanting this thread to devolve into a discussion on the morality of “gay marriage” and the like. But to suggest that the downside of this choice should not be considered as a potentially significant part of their downward trend (espacially considering their previous core customer base), is foolish.

I hold a strong opinion on this cultural issue, but do not put it up front in my business promotional advertising, because I want the business of all people, regardless of their perspective and will treat them honorably regardless of their position on such amtters, too. People do business with us for business reasons and do not do so in order to be counselled as to the morality of their lives and beliefs. People do not go to JcP to be enlightened as to their cultural beliefs, they go there, if they go there at all, to buy clothing. It would be a similar mistake to use, for example, Rush Limbaugh as spokeperson for JcP if you wanted to attract an open cultural crossection of clientelle.

Hi, Billy, thanks for your comments. I respectfully disagree. And if this forum is any reflection, I would say that the scattered nature of the physical store transformation and the confusion over the sales and coupons wrought far greater damage than J.C. Penney opting for Ellen as spokeswoman and diverse families in its ads.

I hadn’t been to JCP in years but returned after the “Million Moms” made me so mad. I discovered a great store and some great prices. Since then I have made JCP a regular part of my shopping. I have bought lamps, kitchen ware, a new suit and a lot of jeans and clothes. I think people are really missing out. The stores in my area are laid out well, have great prices and selection. I encourage those who haven’t been to JCP in a while to try again. I was pleasantly suprised. I hope they can survive.

I guess I’m in the minority but I actually like some of the changes made at JC Penney. I have shopped there more this year than I have in the past 20. They have remodeled my local one in Wilkes-Barre, PA extensively and made it much brighter and more modern, and their selection of men’s clothes, and their pricing seems better than it was. Sad to hear more people don’t find the shopping experience there as pleasant.

Mike, your new store has the branded areas? Interesting to get a on-the-ground approach from those with access to these new locations. Unfortunately, by the time the rest of the stores are redone, J.C. Penney may have lost too many customers.

Yes it has the branded areas … Levi’s … Izod … Arizona … (the Levi’s section is very interesting and impressive) they added a Sephora … it is much nicer than it used to be … and the store layout is much better, in my opinion. Yes, it will be too bad if they don’t redo some other ones in time to save the company.